DSGE Model-Based Forecasting of Modeled and Non-Modeled Inflation Variables in South Africa

Rangan Gupta, Patrick Kanda (), Mampho Modise () and Alessia Paccagnini
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Patrick Kanda: Department of Economics, University of Pretoria
Mampho Modise: Department of Economics, University of Pretoria

No 201374, Working Papers from University of Pretoria, Department of Economics

Abstract: Inflation forecasts are a key ingredient for monetary policymaking - especially in an inflation targeting country such as South Africa. Generally, a typical Dynamic Stochastic General Equilibrium (DSGE) only includes a core set of variables. As such, other variables,e.g. such as alternative measures of inflation that might be of interest to policymakers, do not feature in the model. Given this, we implement a closed-economy New Keynesian DSGE model-based procedure which includes variables that do not explicitly appear in the model. We estimate such a model using an in-sample covering 1971Q2 to 1999Q4, and generate recursive forecasts over 2000Q1-2011Q4. The hybrid DSGE performs extremely well in forecasting inflation variables (both core and non-modeled) in comparison with forecasts reported by other models, such as the AR(1).

Keywords: DSGE model; inflation; core variables; non-core variables (search for similar items in EconPapers)
JEL-codes: C11 C32 C53 E27 E47 (search for similar items in EconPapers)
Pages: 19 pages
Date: 2013-11
New Economics Papers: this item is included in nep-afr, nep-dge, nep-for, nep-mac and nep-mon
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Citations: View citations in EconPapers (8)

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Related works:
Journal Article: DSGE model-based forecasting of modelled and nonmodelled inflation variables in South Africa (2015)
Working Paper: DSGE model-based forecasting of modelled and nonmodelled inflation variables in South Africa (2015)
Working Paper: DGSE Model-Based Forecasting of Modeled and Non-Modeled Inflation Variables in South Africa (2013)
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